Will electric cars ever enter the mainstream?

Unless battery prices come down and performance goes up, there will be no compelling reason to go electric

There's a good case for the all-electric Nissan Leaf, looking at its environmental and economic benefits. But for other electrics, high battery prices and lower performance make them less attractive to customers. Photograph: Mike Cassese/REUTERS

Pardon my metaphor, but is the tank half-empty or half-full when it comes to electric cars?

The bad news: start-up electric-car makers Aptera, Better Place, Coda and Fisker are out of business, or close to it. Of the 14.4m cars sold last year in the US, only 52,835 – one out of every 270 cars sold – were plug-in hybrids, like the Chevy Volt, or pure electric cars like the Nissan Leaf. Even with generous government subsidies, including a $7,500 (£5,000) tax credit for electric-car buyers, there is no hope of getting a million electric vehicles on the road by 2015, a goal set by president Obama in his 2011 State of the Union address.

And yet, virtually all the big auto-makers are charging ahead, with GM, Ford, Toyota, Honda, Volkswagen and BMW expanding their electrified offerings. So far this year, sales of electric cars are up by 123% over 2012, the Electric Drive Transportation Association (EDTA) reports. Influential publications such as Consumer Reports and Motor Trend rave about electric cars – in particular the new Tesla S. And all indications are that electric car owners are pleased with their vehicles.

"There is no buyer's remorse," says Arun Banskota, owner of a pure electric car and, more importantly, the president of eVgo, a startup company owned by utility NRG Energy that is building out electric-car charging infrastucture.

To get a sense of where the market is going, I sat down with Banskota after EDTA's annual convention in Washington, and spoke by phone with Siddiq Khan, the co-author of a new report called Plug-In Electric Vehicles: Challenges and Opportunities, from the American Council for an Energy-Efficient Economy (ACEE). Both are optimistic about the future for electric cars, but they caution that mass adoption will take longer than most people (including, evidently, the president) expected.

That's because electric cars are not iPhones or Facebook – a car is the second biggest purchase most Americans will make. Buying electric is a radical departure. "Going back for generations, the basic process of buying and owning and fueling your vehicle has remained pretty much the same," Banskota says. "We've learned how hard it is to change consumer behaviour."

Consumers need a compelling reason to try something new – a reason which, for all the buzz surrounding electric cars, the industry has yet to articulate. Is it the "cool" quotient? The fact that electric cars are fun to drive? Or quiet? Or low polluting? Will drivers be excited by the opportunity to plug in and refuel at home, at the expense of Big Oil?

Likely, it's none of the above. Not surprisingly, economics will be key. Other issues – the limited range of electric cars, and the absence of a fast and convenient public charging systems – will be solved by companies like eVgo and its competitors. But until the costs of batteries come down, and their performance improves, electric cars will remain a niche business.

The ACEE study compared not merely the sticker prices but the fuel costs over five years of driving comparable cars – a Ford Focus with gasoline engine, a Ford Focus electric, a Toyota Prius hybrid, an all-electric Nissan LEAF and a Chevrolet Volt, which runs primarily on electricity but has a gasoline engine to extend its range.

The conventional Ford Focus, the Prius and the LEAF all came in at about $23,500 (£15,500) (assuming a $3.60 (£2.40) gasoline price and 12,000 miles of driving per year). But the two other electrics, the Ford Focus electric and Chevy Volt, came in with costs that are more than $10,000 (£6,600) higher, meaning that the fuel savings resulting from using electricity instead of gasoline don't come close to paying back the much higher up-front price. That's a huge problem.

"Looking at the environmental benefits as well as the economic, there's a pretty good case for the LEAF," Khan told me. But for the Volt and Focus, he said: "The big challenge is reducing the battery price. It constitutes almost a third of the cost of an electric vehicle."

Battery costs have come down from $1,300 per kilowatt-hour (kWh) in 2007 to $500 (£330) per kWh in 2012, the ACEE report says. The US Department of Energy, which is financing battery research, has set cost targets of $300 (£200) per kWh in 2015 and $125 (£82) per kWh by 2022. Some analysts say those are realistic targets, but others are skeptical.

Evidence that price matters surfaced recently when Nissan, Honda and General Motors dropped prices on the electric cars, and shoppers poured into dealerships. Honda apologised when it couldn't supply FIT electrics to its California dealers. Drivers can now purchase an electric car for under $20,000 (£13,200), or lease one for as little as $260 (£171), after factoring in dealer incentives and federal tax credits. That will surely spur the market, although it's unlikely that the car companies can make money at those prices.

Although most electric cars are now charged overnight at home while their owners sleep, an increase in public charging stations is important to help allay what's called "range anxiety" – the worry that an electric car's battery charge won't be sufficient to get drivers where they want to go. One issue has been that for the fastest charging stations (known as DC or Level 3) auto-makers have been unable to agree on a single standard – another that no single business model has emerged to recoup the capital costs of building out charging stations.

Despite the slower-than-anticipated rollout of electric cars, people who pay close attention to the industry – from the CEO of General Motors to industry analysts and satisfied Tesla drivers – remain steadfast in their belief that electric cars will eventually win over consumers, driven by better technology, lower battery cost and rising gasoline prices. Navigant Research recently predicted that worldwide sales of electric cars will reach 3m annually by 2020.